From the beginning, we remind that the value added tax (VAT) in China is a tax imposed on the sale and import of goods and the supply of certain services. The standard rate is applicable to most products and services, but a reduced rate is also available. The VAT is one of the most important taxes for companies in China and, when doing business here, companies must register for such tax to the authorities in charge. Our lawyers in China can help you register your company for VAT purposes, if it applies to your chosen form of business and the services you provide in the country.
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The VAT in China has a standard value of 17% for the sale and import of goods and also for providing services like processing, repairing and installation. A reduced rate of 13% applies to certain products and goods, such as:
• essential foodstuffs;
• paper products;
• other goods essential for residential use.
Services imported in China from abroad are subject to VAT, however, a tax credit can reduce the cost for the buyer. The VAT in China is paid during the various steps of production, for example during the actual production, when the product is sold to the distributor and when it is resold to a trading company. Our attorneys in China can help you understand the process and manage your activities that include VAT.
Companies that perform export activities are entitled to VAT refund for materials bought in China. Also, small Chinese companies that have a turnover below the legal limit benefit from a reduced VAT rate. Our Chinese lawyers can help you with additional information about these legal benefits and other tax minimization options in China.
Other taxes applicable for registered taxpayers in China are:
• the business tax;
• the consumption tax;
• the urban real estate tax;
• the urban construction;
• maintenance tax;
• the education surcharge.
Depending on the goods and services, the VAT period return in China may vary. For instance, if the declaration of VAT is made on short-term periods, the VATreturn can be settled in only five days. As for the quarterly declaration of VAT in China, the period might prolong to 15 days.
The 3% VAT rate in China is imposed for small-scale taxpayers who deal with construction services in the country. The 5% VAT rate is applicable for particular real estate transactions in China since 2016. The consulting, creative, technical, ancillary, film and television services in China are taxed at a 6% VAT rate. The same rate is available for accommodation, education, healthcare and insurance services in China. An 11% VAT rate is imposed on voice based telecommunications, postal and transportation services in mainland China. It is good to know that certain exported goods have no VAT imposed, such as agricultural products or contraceptive drugs and devices. One of our lawyers can tell you more about the VAT and also about how to obtain the EORI number.
In cases when companies or businesses do not register with the VAT in China in 40 days from their first activity on the market, penalties will be imposed by the financial authorities. For instance, a fixed number of fines and the revocation of the business license can be among penalties for not registering for VAT purposes in China. We remind that a foreign company in China that needs to register for VAT must be established as a WFOE (wholly foreign owned entity) or as a joint venture.
If you want to know more about the taxes for individuals and for companies in China, you can contact our law firm in China. We can help you with essential information about the taxation in China and about the legislation when opening a company in China.